IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Window-Dressing and Lobbying in Performance-Budgeting: a Model for the Public Sector

  • Ivo Bischoff


    (University of Kassel)

  • Frédéric Blaeschke

    (University of Kassel)

Performance budgeting schemes in the public sector have to operate with imperfect performance measures. We argue that these imperfections lead to wasteful fund-seeking (window dressing and lobbying) by the administrative units that produce public services. We develop a game-theoretical model to analyse the trade-off between the productivity-enhancing effect of performance budgeting and the social waste it induces. The optimal performancebudgeting scheme crucially depends on the objective functions of administrative units, the available performance signal and the welfare function used. We compare a performance signal base on units’ effort to a signal based on their output and show that the former evokes more social waste while the latter amplifies regional inequality. Forgone welfare gains or even welfare losses arise when the government is opportunistic. Our model and its major conclusions apply to a large array of publicly installed contests such as programs of international organisations like the IMF and conditional grant schemes in federalist countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: First version, 2012
Download Restriction: no

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201212.

in new window

Length: 43 pages
Date of creation: 2012
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201212
Contact details of provider: Postal:
Universitätsstraße 25, 35037 Marburg

Phone: 06421/28-1722
Fax: 06421/28-4858
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Terry M. Moe, 2006. "Political Control and the Power of the Agent," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(1), pages 1-29, April.
  2. Lorz, Oliver, 2001. "On the effects of capital mobility on local infrastructure policy and rent-seeking," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 319-337, April.
  3. Shun-ichiro Bessho & Kimiko Terai, 2008. "Competition for Private Capital and Central Grants: The Case of Japanese Industrial Parks," Working Papers 080909, University of California-Irvine, Department of Economics.
  4. Timothy Besley & Anne Case, 1992. "Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition," NBER Working Papers 4041, National Bureau of Economic Research, Inc.
  5. Yvon Rocaboy & Guy Gilbert, 2004. "The central government grant allocation problem in the presence of misrepresentation and cheating," Post-Print halshs-00068990, HAL.
  6. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The economics of career concerns: part 1 :comparing information structures," ULB Institutional Repository 2013/9617, ULB -- Universite Libre de Bruxelles.
  7. Paul Belleflamme & Jean Hindriks, 2001. "Yardstick Competition and Political Agency Problems," Working Papers 441, Queen Mary University of London, School of Economics and Finance.
  8. Tim Besley & Maitreesh Ghatak, 2005. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics 928, London School of Economics and Political Science, LSE Library.
  9. Axel Dreher, 2008. "IMF Conditionality: Theory and Evidence," KOF Working papers 08-188, KOF Swiss Economic Institute, ETH Zurich.
  10. Ben Lockwood & Francesco Porcelli, 2013. "Incentive Schemes for Local Government: Theory and Evidence from Comprehensive Performance Assessment in England," American Economic Journal: Economic Policy, American Economic Association, vol. 5(3), pages 254-86, August.
  11. de Groot, Hans, 1988. "Decentralization decisions in bureaucracies as a principal-agent problem," Journal of Public Economics, Elsevier, vol. 36(3), pages 323-337, August.
  12. Berry, S Keith, 1993. "Rent-Seeking with Multiple Winners," Public Choice, Springer, vol. 77(2), pages 437-43, October.
  13. Stein, William E, 2002. "Asymmetric Rent-Seeking with More Than Two Contestants," Public Choice, Springer, vol. 113(3-4), pages 325-36, December.
  14. Hefeker, Carsten, 2005. "Project Aid or Budget Aid? The Interests of Governments and Financial Institutions," Proceedings of the German Development Economics Conference, Kiel 2005 19, Verein für Socialpolitik, Research Committee Development Economics.
  15. Clark, Derek J & Riis, Christian, 1998. "Competition over More Than One Prize," American Economic Review, American Economic Association, vol. 88(1), pages 276-89, March.
  16. Matthew R. Morey & Edward S. O'Neal, 2006. "Window Dressing In Bond Mutual Funds," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(3), pages 325-347.
  17. Geys, Benny & Heinemann, Friedrich & Kalb, Alexander, 2009. "Voter involvement, fiscal autonomy and public sector efficiency: evidence from German municipalities
    [Wähler-Beteiligung, Finanzhoheit und Effizienz des öffentlichen Sektors: Aussagen von deutschen
    ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2009-02, Social Science Research Center Berlin (WZB).
  18. Worthington, Andrew C & Dollery, Brian E, 1998. "The Political Determination of Intergovernmental Grants in Australia," Public Choice, Springer, vol. 94(3-4), pages 299-315, March.
  19. Cragg, Michael, 1997. "Performance Incentives in the Public Sector: Evidence from the Job Training Partnership Act," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(1), pages 147-68, April.
  20. Dougan, William R & Kenyon, Daphne A, 1988. "Pressure Groups and Public Expenditures: The Flypaper Effect Reconsidered," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 159-70, January.
  21. Boadway, Robin & Horiba, Isao & Jha, Raghbendra, 1999. "The Provision of Public Services by Government Funded Decentralized Agencies," Public Choice, Springer, vol. 100(3-4), pages 157-84, September.
  22. Michelle Amazeen, 2011. "Gap (RED): Social Responsibility Campaign or Window Dressing?," Journal of Business Ethics, Springer, vol. 99(2), pages 167-182, March.
  23. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
  24. Philip J. Grossman, 1987. "A Political Theory of Inter-Governmental Grants," School of Economics Working Papers 1987-06, University of Adelaide, School of Economics.
  25. Banks, Jeffrey S. & Sundaram, Rangarajan K., 1998. "Optimal Retention in Agency Problems," Journal of Economic Theory, Elsevier, vol. 82(2), pages 293-323, October.
  26. Grossman, Philip J. & Mavros, Panayiotis & Wassmer, Robert W., 1999. "Public Sector Technical Inefficiency in Large U.S. Cities," Journal of Urban Economics, Elsevier, vol. 46(2), pages 278-299, September.
  27. W. Crain & J. O’Roark, 2004. "The impact of performance-based budgeting on state fiscal performance," Economics of Governance, Springer, vol. 5(2), pages 167-186, 07.
  28. Clark, Derek J & Riis, Christian, 1996. "A Multi-winner Nested Rent-Seeking Contest," Public Choice, Springer, vol. 87(1-2), pages 177-84, April.
  29. Stickney, Clyde P, 1975. "Window Dressing the Interim-Earnings Report: An Empirical Assessment for Firms Initially Going Public," The Journal of Business, University of Chicago Press, vol. 48(1), pages 87-97, January.
  30. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  31. Cornelius Bähr, 2008. "How does Sub-National Autonomy Affect the Effectiveness of Structural Funds?," Kyklos, Wiley Blackwell, vol. 61(1), pages 3-18, 02.
  32. Borck, Rainald & Owings, Stephanie, 2003. "The political economy of intergovernmental grants," Regional Science and Urban Economics, Elsevier, vol. 33(2), pages 139-156, March.
  33. Robert Fenge & Matthias Wrede, 2007. "EU Financing and Regional Policy: Vertical Fiscal Externalities when Capital is Mobile," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(4), pages 457-476, December.
  34. McCubbins, Mathew D & Noll, Roger G & Weingast, Barry R, 1987. "Administrative Procedures as Instruments of Political Control," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 243-77, Fall.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mar:magkse:201212. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bernd Hayo)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.